(QCOSTARICA) Tens of thousands of bank customers saw their credit cards cut by the banks in recent weeks. Some got emails, others got a call with the bad news: the bank informs you that it will close your credit card permanently and you will have to pay the accumulated debt.
Some 136,000 customers went from having a credit card with an outstanding balance, to a loan that must be paid off within a maximum period of five years, with interest.
The measure can’t be blamed on the coronavirus, it is attributed to the Ley de Promoción de la Competencia y Defensa del Consumidor (Law for the Promotion of Competition and Consumer Protection), better known as the “usury law”, in effect in June, which puts a limit on the interest rates charged by the card issuers.
According to Alberto Dent, president of the National Council for the Supervision of the Financial System (Conassif) estimates up to 160,000 credit card accounts have been closed.
However, the General Superintendency of Financial Entities (Sugef) and Conassif are working on a mapping of the closed card accounts to know how many were closed due to the pandemic and which due to the usury law.
The final result will be ready between the end of August and mid-September.
BAC Credomatic, Davivienda, Promerica, and Scotiabank are among the financial entities that have publicly communicated what measures they adopted with the definition of usury rates.
These four issuers accumulate a figure of 234,526 eliminated plastics, to about 136,000 customers (a customer can have several cards).
BAC alone closed 187,526 credit cards to a total of 79,789 customers. Davivienda, meanwhile, closed 7,000, belonging to the same number of customers. Promerica confirmed the elimination of 40,000 cards of approximately 30,000 customers.
For its part, Scotiabank announced in July that it would close cards to 20,000 customers, however, it did not detail how many cards.
It is not known why banks chose to close the cards rather than re-negotiate with their customers.
According to the BAC, it said it chose to close the accounts because “some customers were no longer profitable” due to the fall in interest rates and customer risk.
Among those who received the new were customers who used the plastic infrequently and risky customers, those with little connection with the bank (ie only having a credit card account and no other bank products or services) and bad payers.
New debt
The closure of the credit card account did not wipe out the customer’s debt to the bank, outstanding credit card balances were transformed into loans for a term of up to 60 months, at a lower interest rate governed and are governed by the same rules as any financing product in the event of delinquency.
The interest rate on these loans was adjusted to the maximum annual rates for loans and small credits under the new law of up to 37.50% for loans in Colones and 30.36% for US dollars.
The change isn’t without its problems. Customers who felt wronged by their bank filed a complaint with the Ministry of Economy, Industry and Commerce (MEIC).
As of August 12, however, only 41 complaints had been filed for credit cards and 40 for other bank products.
The new law also has forced banks to re-evaluate their credit products, including some banks temporarily cutting lending, awaiting clear regulations of the rules that banks must follow and will allow them to analyze in more detail what other financing products they can offer.
Laura Moreno, vice president of Corporate Relations at BAC Credomatic, explained that the bank is in the process of creating new credit and microcredit products that allow it to continue operating in the segments to which the card was closed, within the framework of the law.
Arturo Giacomin, executive president of Davivienda Costa Rica expressed the same, “We are working on innovative proposals that in the near future we can reach these clients with an offer that allows us to serve them in a better way.”
In the meantime, customers, holders of the high-interest credit cards, who today are excluded from access to financing in the formal sector, will most likely have to turn to the informal sector as the “only option to obtain financing” explained Bernardo Alfaro, the head of Sugef, in early July.
